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Is gold a better choice as reserve currency for smaller market economies?

Author

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  • Ibrahim, Zil Farlilah
  • Masih, Mansur

Abstract

The objective of this paper is to statistically analyze whether gold is a better choice as reserve currency for smaller market economies using the Vector Auto Regression (VAR) model. This study involves the gold price movement relative to 5 selected equity indices price movement namely 3 in major market economies –DJIA in US, FTSE in UK, and NIKK in Japan – and 2 from the smaller emerging market economies – KLCI in Malaysia, and IRTS in Russia for a span of 15 years. This paper also attempts to identify the endogeneity and exogeneity of the variables under study. The policy implication from our study, in fact, answers our main research objective that YES, gold is a better currency in reserve baskets. And for this very reason also, there is a need to restore gold as the standard international payment system (Askari and Krichene, 2014). The usage of gold in the international Islamic gold standard serves as the natural foundation of money which safeguards against governments’ debasement of money and inflationary deficits. It removes the major source of instability, which is interest-based credit and the major cycles of crisis it brings. Hence, only risk and uncertainty which is a part of nature, enterprise and investment remains.

Suggested Citation

  • Ibrahim, Zil Farlilah & Masih, Mansur, 2017. "Is gold a better choice as reserve currency for smaller market economies?," MPRA Paper 105474, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105474
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    References listed on IDEAS

    as
    1. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
    2. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    3. Thi Hong Van Hoang, 2010. "The Gold Market at the Paris Stock Exchange: A Risk-Return Analysis 1950-2003," Historical Social Research (Section 'Cliometrics'), Association Française de Cliométrie (AFC), vol. 35(3), pages 389-411.
    4. Lu Yang & Shigeyuki Hamori, 2014. "Gold prices and exchange rates: a time-varying copula analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(1), pages 41-50, January.
    5. A. Malliaris & Mary Malliaris, 2013. "Are oil, gold and the euro inter-related? Time series and neural network analysis," Review of Quantitative Finance and Accounting, Springer, vol. 40(1), pages 1-14, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Vector Auto Regression (VAR); gold; reserve currency; Dow Jones Industrial Average Index; FTSE 100 Index; Nikkei 225; Kuala Lumpur Composite Index; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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